TommyWonk

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Monday, August 31, 2009

The True Cost of Waxman-Markey

Opponents of the Waxman-Markey climate bill are resorting to the time honored tactic of exaggerating the costs and downplaying the benefits. Waxman-Markey, more formally known as the American Clean Energy and Security Act or ACES, is attracting the same sort of economic bamboozlement that we saw during the fight over wind power here in Delaware.ACES would create a market of emission allowances that would shift billions of dollars from fossil fuel technologies to conservation and renewable energy projects. With that kind of money at stake, opponents are pushing the familiar line that we can't afford to act on climate change.A Washington Post/ABC News poll has measured the public's tolerance of higher energy prices stemming from action against global warming.It turns out the poll's break point matches the argument over the net cost of ACES. The Heritage Foundation has circulated the claim that Waxman-Markey would add $1,500 to a family’s annual energy budget. On the more modest end of the scale, the EPA projects a lower figure of $80 to $111 per household. But the more significant part of the equation isn’t the outlay, it’s the size of the potential benefit from energy conservation. A recent report from McKinsey & Company projects that $520 billion in investment in energy conservation would reduce energy use by 23 percent by 2020 and return $1.2 trillion in cost savings. A report by Environment Northeast, a non-profit think tank, projects that Waxman-Markey would generate $627 million in energy efficiency investment in Delaware, and return $1.882 billion in savings, which is one reason why Delaware isn’t waiting for the federal government to act. Governor Jack Markell recently pushed through legislation that would reduce peak electricity demand by 15 percent by 2015 through conservation.Acting on climate change will create net enormous benefits for energy users. If Waxman-Markey's advocates can get that message through to voters, then support for meaningful action on climate change should carry the day.

Friday, August 28, 2009

Slowing the Economic Free Fall

The revised GDP number for the second quarter came out. The U.S. economy contracted at an annual rate of 1.0 percent in the second quarter, which in itself isn't much to cheer about. But in context, it's actually encouraging. GDP had fallen 5.4 percent and 6.4 percent in the previous two quarters.What happened to arrest the economy's free fall? Four government prorams, the bank bailout, the Fed's monetary policy, the stimulus plan and cash for clunkers, have had a decisive effect.The bank bailout poured billions into our financial institutions to keep them afloat. It wasn't pretty, and some folks whose bad behavior helped get us into this mess did better than they deserved. But a modern economy needs a functioning financial sector. If the government had not acted to shore up the banks, the economic crisis would have been much worse.The Federal Reserve flooded the market with liquidity to ensure the availability of credit. The Fed's balance sheet has grown from $939 billion a year ago to $2.1 trillion today.So why haven't we seen an explosion of inflation? If inflation is quantity of money times velocity, the answer is that money hasn't been moving as fast. Families and businesses slowed spending, increased savings and have been paying down debt. Lenders contracted lines of credit across the board. Many of the exotic derivatives that greatly expanded leverage have fallen out of favor.The stimulus package is working. Even though much of the money for big projects has yet to be spent, the $288 billion in tax cuts and the $144 billion in aid to state and local governments have already had a big impact. Imagine what would have happened here in Delaware if the state had had to find another $155 million in cuts or higher taxes to make up for the help provided by the stimulus plan.The cash for clunkers program (relatively modest at $2.9 billion) sparked 700,000 new car sales in three short weeks and pushed the new car market above the break-even point for Ford, GM and Chrysler.The U.S. economy has been through a scary roller coaster ride over the last year. Millions of American have lost their jobs and their homes. There will be more job losses and foreclosures in the coming year. But millions more who were worried about losing their jobs, homes and retirement savings are breathing easier than they were last winter. I know I am.

Wednesday, August 26, 2009

Joe Biden Remembers Ted Kennedy

Vice President Joe Biden set aside his prepared remarks on stimulus funding for energy projects to offer his remembrance of Senator Ted Kennedy. The White House has published this transcript of his comments:

THE VICE PRESIDENT: Well, Mr. Secretary, thank you and your staff for the privilege of being with you today on what, as I prepared last night, was to be a joyous occasion, announcing another step in the direction of energy independence. And you said the President made a wise choice. The wisest choice the President made was asking you to be -- I mean that sincerely -- to be the Secretary to the Department of Energy. You've assembled a first-rate staff, and you've taken on a role that is going to be a -- is going to, in large part, determine the success of these next three-and-a-half years, whether or not we make a genuine dent, genuine progress in moving toward an energy policy that can help America lead the world in the 21st century as it did in the 20th century.Some suggest we're trying to do too much. But my response is, is there any possibility of America leading the world in the 21st century without a radically altered energy policy? It is not possible. And that charge has been given to one of the most remarkable men to serve in a President's Cabinet, a Nobel laureate who is as articulate as he is obviously bright, and a man who has assembled a staff that can corral the bureaucracy -- and we're all -- deal with bureaucracy, we're all part of it -- in a way that I haven't seen in awhile.And I had planned on speaking to the Clean Cities Program as one of the several initiatives we have to begin to reshape our energy policy. But as if Teddy were here, as we would say in the Senate, if you'd excuse a point of personal privilege, I quite frankly think it's -- would be inappropriate for me to dwell too much on the initiative that we're announcing today and not speak to my friend.My wife Jill, and my sons Beau and Hunter, and my daughter Ashley -- and I don't say that lightly, because they all knew Teddy, he did something personal and special for each one of them in their lives -- truly, truly are distressed by his passing. And our hearts go out to Teddy Jr., and Patrick and Kara, and Vicki, with whom I spoke this morning, and the whole Kennedy family.Teddy spent a lifetime working for a fair and more just America. And for 36 years, I had the privilege of going to work every day and literally, not figuratively sitting next to him, and being witness to history. Every single day the Senate was in session, I sat with him on the Senate floor in the same aisle. I sat with him on the Judiciary Committee next -- physically next to him. And I sat with him in the caucuses. And it was in that process, every day I was with him -- and this is going to sound strange -- but he restored my sense of idealism and my faith in the possibilities of what this country could do.He and I were talking after his diagnosis. And I said, I think you're the only other person I've met, who like me, is more optimistic, more enthusiastic, more idealistic, sees greater possibilities after 36 years than when we were elected. He was 30 years-old when he was elected; I was 29 years-old. And you'd think that would be the peak of our idealism. But I genuinely feel more optimistic about the prospect for my country today than I did -- I have been any time in my life.And it was infectious when you were with him. You could see it, those of you who knew him and those of you who didn't know him. You could just see it in the nature of his debate, in the nature of his embrace, in the nature of how he every single day attacked these problems. And, you know, he was never defeatist. He never was petty -- never was petty. He was never small. And in the process of his doing, he made everybody he worked with bigger -- both his adversaries as well as his allies.Don't you find it remarkable that one of the most partisan, liberal men in the last century serving in the Senate had so many of his -- so many of his foes embracing him, because they know he made them bigger, he made them more graceful by the way in which he conducted himself. You know, he changed the circumstances of tens of millions of Americans -- in the literal sense, literally -- literally changed the circumstances. He changed also another aspect of it as I observed about him -- he changed not only the physical circumstance, he changed how they looked at themselves and how they looked at one another. That's a remarkable, remarkable contribution for any man or woman to make. And for the hundreds, if not thousands, of us who got to know him personally, he actually -- how can I say it -- he altered our lives as well.Through the grace of God and accident of history I was privileged to be one of those people and every important event in my adult life -- as I look back this morning and talking to Vicki -- every single one, he was there. He was there to encourage, to counsel, to be empathetic, to lift up. In 1972 I was a 29 year old kid with three weeks left to go in a campaign, him showing up at the Delaware Armory in the middle of what we called Little Italy -- who had never voted nationally by a Democrat -- I won by 3,100 votes and got 85 percent of the vote in that district, or something to that effect. I literally would not be standing here were it not for Teddy Kennedy -- not figuratively, this is not hyperbole -- literally.He was there -- he stood with me when my wife and daughter were killed in an accident. He was on the phone with me literally every day in the hospital, my two children were attempting, and, God willing, thankfully survived very serious injuries. I'd turn around and there would be some specialist from Massachusetts, a doc I never even asked for, literally sitting in the room with me.You know, it's not just me that he affected like that -- it's hundreds upon hundreds of people. I was talking to Vicki this morning and she said -- she said, "He was ready to go, Joe, but we were not ready to let him go."He's left a great void in our public life and a hole in the hearts of millions of Americans and hundreds of us who were affected by his personal touch throughout our lives. People like me, who came to rely on him. He was kind of like an anchor. And unlike many important people in my 38 years I've had the privilege of knowing, the unique thing about Teddy was it was never about him. It was always about you. It was never about him. It was people I admire, great women and men, at the end of the day gets down to being about them. With Teddy it was never about him.Well, today we lost a truly remarkable man. To paraphrase Shakespeare: I don't think we shall ever see his like again. I think the legacy he left is not just in the landmark legislation he passed, but in how he helped people look at themselves and look at one another.I apologize for us not being able to go into more detail about the energy bill, but I just think for me, at least, it was inappropriate today. And I'm sure there will be much more that will be said about my friend and your friend, but -- he changed the political landscape for almost half a century. I just hope -- we say blithely, you know, we'll remember what we did. I just hope we'll remember how he treated other people and how he made other people look at themselves and look at one another. That will be the truly fundamental, unifying legacy of Teddy Kennedy's life if that happens -- and it will for a while, at least in the Senate.Mr. Secretary, you and your staff are doing an incredible job. I look forward to coming back at a happier moment when you are announcing even more consequential progress toward putting us back in a position where once again can control our own economic destiny. Thank you all very, very much.

"It seems counterproductive to place the burden of establishing a recycling program on an entity whose main source of funding comes from tipping fees at the landfills," the task force report said. "For that reason, it may be necessary to establish a sister authority to do for recycling what the DSWA has done for trash."

Unfortunately, the DSWA has so far been unable to to create recycling programs that can replace the revenue lost from diverted landfilling. In the meanwhile, the DSWA has enormous fixed costs it has to cover, including $95 million to shore up the Cherry Island Landfill and raise the maximum height from 172 feet to 196 feet (and even higher if it could get the permits). DSWA CEO Pat Canzano neatly summed up the agency's dilemma:

"I don't care if only 10 percent goes into a landfill and 90 percent goes to recycling, as long as the fees we charge support the program and people are paying a fair price for the service they're getting," Canzano said.

The trouble is that the DSWA hasn't figured out how to make money from recycling. The City of Wilmington contracts with a Philadelphia firm, Recycle Bank, to process its recyclables.The Cherry Island Landfill is expected to reach its capacity in the year 2034. 25 years may seem like a long time, except when you consider that there is no place to put the next landfill in northern Delaware.

Thursday, August 20, 2009

Cash for Clunkers: Going Fast

It was only two weeks ago that the Senate voted to appropriate another $2 billion to keep the Car Allowance Rebate System or CARS (better known as the cash for clunkers program) going. That $2 billion is set to run out Monday night. The New York Times reports that the program has helped finance more than 457,000 purchases since July 24. Car lots have been emptied in the rush, prompting automakers and suppliers to ramp up production lines that had been quiet since last year.As I wrote two weeks ago, the primary purpose of CARS is to stimulate demand, and nudge the country in the direction of better fuel mileage while we're at it. As of today, the number of vehicle purchases financed by CARS should be enough to drive the seasonally adjusted annualized rate (SAAR) well above the break even point for GM, Chrysler and Ford for the second month running.Keep in mind that less than six months ago the survival of GM and Chrysler was very much in question. GM's auditors had forced management to insert this troubling sentence in the company's annual report: "There is substantial doubt about our ability to continue as a going concern."Buyers are opening up their checkbooks, lots are being emptied, assembly lines are being fired up, workers are being called back, and sales have climbed above Detroit's break even level. The cash for clunkers program looks like it has been a decisive success.

Tuesday, August 18, 2009

No Regrets

The lineup on the main stage Saturday night traced the arc of ongoing changes in folk music at a time when the old guard is giving way to a new generation. Tom Rush took the stage at around 10 o'clock.He didn't present a greatest hits set, as I have seen many aging folkies do, though he did perform a quietly compelling version of the FM radio classic, Drift Away, which was a hit for Dobie Gray and just about everyone else for the next thirty years. Rush made the song swing with quiet harmonics and gentle plucking. I never fully appreciated what a terrific player he is, even though he pioneered the use of alternate tunings in the 1960s, perhaps because he never drew attention to his technique. It takes a special kind of artistry to make a song more compelling by turning down the volume. The drum and turntable duo Fraction Theory followed, opening their set with a sample from Tom Rush's signature song, No Regrets: "no tears, goodbye."They sampled Johnny Cash and Joni Mitchell, not to render them obsolete, but to place them in a contemporary context. Their music is not so much a goodbye to folkies like Tom Rush, but an introduction to the iPod generation. Iron and Wine finished the evening with a solo performance that commanded the audience's attention all the way to the top of the hill. Iron and Wine (Samuel Beam offstage) was born in 1974, half a lifetime ago for Tom Rush. He played with vigor and sang with a warm and friendly voice.The last solo artist I saw hold the crowd's attention at this hour on a Saturday night was Bruce Cockburn in 2002, and this was after 25 years of recording and touring. That Iron and Wine could do it after just seven years of performing bodes well for the future of folk music.The Philly Folk Fest did well in programming younger musicians that connected with younger folk fans. Folk music enthusiasts should have no regrets that younger artists are stepping up to the microphone.

Sunday, August 16, 2009

The Decemberists at Folk Fest

The Decemberists delivered a stunning set Saturday afternoon at the Philly Folk Fest. The band's young fans were on their feet from the opening chords of concept album, The Hazards of Love. They danced and sang along from the moment Colin Meloy stepped forward to deliver the opening lines from the band's concept album:Shara Worden, the lead singer for My Brightest Diamond, electrified the crowd when she stepped forward to sing the part of the Queen:The Decemberists have wowed crowds this summer at Bonnaroo and the Newport Folk Festival. I have rarely seen a band create such a direct emotional bond with an audience.Alela Diane opened the afternoon concert with an expressive voice that reminded me of Beth Orton, with some of the same rich tones. Even at her quietest, she can connect with the last row of even the largest audience.

Saturday, August 15, 2009

Jill Henessy at the Philly Folk Fest

Somewhere, on some television channel or another, just about any time of day or night, you can find Jill Henessy on a Law & Order rerun. But this afternoon, you could find her onstage at the Philly Folk Fest. It turns out Henessy was playing guitar for a long time before she played a lawyer on TV. She put out a CD as a soundtrack for her series Crossing Jordan, produced by T Bone Burnett. She sings with a rich voice that add warmth to her songs. She also knows how to smile for the camera.WiFi at Fest is spotty, so it may be a while before I can offer a full report of the proceedings. Stay tuned.

Friday, August 14, 2009

Friday Night at the Philly Folk Fest

Despite torrential rains earlier in the week that left parking lots waterlogged, the Philly Folk Fest is in full swing tonight.Guitar virtuoso Erik Mongrain strokes, strikes and strums his instrument to create sounds that most players never imagined were available from a wooden instrument with just six strings.The heavy rains rains earlier this week left the grounds so saturated that much of the main parking lot has been left unusable. Folk fans were frustrated by the delays last night. But volunteers have been shuttling campers and concert goers from the remote parking sites to the Festival grounds, and the hill looking over the main stage is filling up.

"Most people, when they hear the word folk music, just assume it's any sort of pop-derived music that features an acoustic guitar centrally," he says. "That's the late-20th-, early-21st-century definition of folk music."

Steve, who is also a WVUD DJ, reports that The Decemberists will perform their new progressive rock flavored concept record, The Hazards of Love, in its entirety at the afternoon concert. The title is taken from a 1963 EP with the same title by British folkie Anne Briggs, one of the leaders of the folk revival of the 1960s. The category of folk music has grown and changed enormously since then. Folk Fest has included more and more young performers in recent years. As I say every year, the most exciting music is usually from someone I've never heard before.

Wednesday, August 12, 2009

RFK and GNP

Gross National Product counts air pollution and cigarette advertising, and ambulances to clear our highways of carnage. It counts special locks for our doors and the jails for the people who break them. It counts the destruction of the redwood and the loss of our natural wonder in chaotic sprawl...Yet the gross national product does not allow for the health of our children, the quality of their education or the joy of their play. It does not include the beauty of our poetry or the strength of our marriages, the intelligence of our public debate or the integrity of our public officials. It measures neither our wit nor our courage, neither our wisdom nor our learning, neither our compassion nor our devotion to our country. It measures everything, in short, except that which makes life worthwhile. And it can tell us everything about America except why we are proud that we are Americans.

Monday, August 10, 2009

GDP and Nature

If you let the sun dry your clothes, the service is free and doesn’t show up in our domestic product; if you throw your laundry in the dryer, you burn fossil fuel, increase your carbon footprint, make the economy more unsustainable — and give G.D.P. a bit of a bump.

Only God can make a tree, but it doesn't have value in GDP until someone cuts it down. If I cut down a tree or destroy an entire mountain and burn it for heat, GDP is increased. But if I make my home more energy efficient, and don't have to burn that wood or that coal, the savings don't show up in GDP—at least not directly. Instead, the savings are likely to show up indirectly. I can either spend the savings on other goods and services, or put more money in my bank account. The fallacy that reducing spending on energy reduces economic value is related to the shortcomings of using GDP to measure economic value:

This points to the larger, deeper flaw in using a measurement of national income as an indicator of economic well-being. In summing all economic activity in the economy, gross domestic product makes no distinction between items that are costs and items that are benefits. If you get into a fender-bender and have your car fixed, G.D.P. goes up.

This of course is nonsensical. If a corporation had an asset damaged, it would be expected to write down the asset value on its balance sheet. But a nation can cut down forests or dynamite mountains out of existence and see its GDP go up.As I noted recently, some critics of energy conservation have fallen prey to the fallacy that if I spend less on energy I must be worse off, when the opposite could be true. The measure of my well being is not what I spend, but the value I receive. An economic measure that fails to recognize that a tree has value before it is cut down is clearly flawed. But GDP, as presently constituted, is more likely to measure value if something is burned in the process.

Delaware "on the brink of a new energy era"

Newly approved conservation and clean-energy mandates have raised nearly insurmountable barriers to building more fossil-fueled power plants to supply utilities in Delaware or even importing a bigger share of fossil power, putting the state on the brink of a new energy era.The measures require consideration of renewable-energy options before any new conventional power supplies can even be considered. They also require a 15 percent reduction in the amount of electricity sold by 2015 and a 10 percent cut in natural-gas use.

Are the new targets realistic? As I told Montgomery, I don't think we have to wait for future breakthroughs in technology to realize reductions in demand:

Many estimates fail to account for all benefits from conservation, Noyes said."I think the potential -- and it's not theoretical -- for reducing demand is such that we can, with current technology, reduce demand in a cost-effective way that would preclude the need to build any new capacity, and certainly not fossil-fuel capacity," Noyes said.

The story notes a recent McKinsey report (cited in this New York Times article) that describes how $520 billion in investment could reduce energy use by 23 percent by 2020 and return $1.2 trillion in cost savings. If McKinsey's numbers hold for Delaware, $1.4 billion in investment would return $3.2 billion in savings, and surpass the targets set in the new legislation. That would be a pretty good ROI and a significant boost to our economy, when you consider that Delaware's GDP was $49.2 billion in 2008. I know that raising the capital looks daunting, but a report by Environment Northeast, a non-profit think tank, projects that the American Clean Energy and Security Act (ACES or Waxman-Markey) would generate $627 million in energy efficiency investment in Delaware, and return $1,882 million in savings.

On Wednesday, the Transportation Department published new figures showing that a total of 184,304 trades had consumed $775.2 million of the $1 billion originally appropriated.

The program is prompting consumers to trade in for higher mileage vehicles, with an average increase of 9.6 mpg. One reader did some calculating and concluded that the program had "little relevance to reducing US oil demand." While I am gratified that this blog attracts readers who are willing to do the math in making a point, I can't agree with his conclusion. Cash for clunkers is not primarily an energy bill. We're in the depths of the country's worst economic crisis since the 1930s. Today's unemployment report marks the 19th month of job losses since the recession began. The U.S. lost only 247,000 jobs in July, even though the rate dropped to 9.4 percent.The primary effect of CARS is to stimulate demand, and nudge the country in the direction of better fuel mileage while we're at it. The vehicles replaced so far represent roughly 0.1 percent of the 250 million passenger vehicles on the road. Replacing them with more efficient models will take time, and sustained effort. You may recall that auto executives joined President Obama to announce plans to increase fuel efficiency standards earlier this year. What the cash for clunkers program is doing is lifting the market above the break-even point for GM and Chrysler and clearing out inventories, which have dropped sharply since last fall. If demand keeps up, then auto dealers will have to order new stock, prompting manufacturers to ramp up production for the first time in nearly two years.

Tuesday, August 04, 2009

Cash for Clunkers Is Working

CARS (the Car Allowance Rebate System), more commonly known as cash for clunkers program, has exceeded expectations. Customers bought more cars in July than they have in any month so far this year, and they are buying more fuel efficient vehicles. Yesterday in the Guardian, I wrote that the cash for clunkers program was "a blunt instrument, economically speaking." But it turns out that the program has had precisely the intended effect on two crucial measures. Auto sales in July climbed above the break-even point for Ford, GM and Chrysler. And customers are swapping gas guzzlers for more efficient vehicles.All year, car sales as measured by the seasonally adjusted annualized rate (SAAR) has hovered just below 10 million units, which would not be enough to return Detroit to profitability. July sales jumped to 997,824, which translates to a SAAR of 11.24 million—higher than analysts were predicting as recently as last week.The average gas mileage of vehicles sold was 25.4 mpg, compared to 15.8 mpg for vehicles traded in. 83 percent of trade-ins were trucks, while 60 percent of new vehicles sold were cars. The most popular vehicle was the Ford Focus, which is rated 28 mpg combined city and highway. If 250,000 new cars are bought under the program, and the average car is driven 10,000 miles per year, car owners will save nearly 60 million gallons of gasoline in the first year. At $2.50 a gallon, the savings to drivers will total about $150 million.The New York Times reports that Senators Dianne Feinstein and Susan Collins, who had advocated for stronger mileage requirements, have thrown their weight behind a bill to add $2 billion in funding to the program. As I noted in the Guardian, some of the program's success is simply lucky timing:

On this day in 1961

Monday, August 03, 2009

The Business Case for Government Leadership on Energy

Writing in the Washington Post, John Doerr, a partner in the renowned venture capital firm Kleiner Perkins Caufield & Byers, and Jeff Immelt, chairman and CEO of General Electric, tell us what what the government needs to do to promote green energy in the U.S. Their call for greater government intervention in the market, including a system that puts a price on carbon emissions, will dismay free market fundamentalists:

Send a long-term signal that low-carbon energy is valuable. We must put a price on carbon and a cap on carbon emissions. No long-term signal means no serious innovation at scale, which means fewer American success stories.

As I noted last week, cap and trade "uses market forces instead of brute force regulation" to reduce emissions and provide incentives for renewable energy production.The fundamentalists won't like this either:

Set energy standards that grow steadily stronger.

Stronger energy efficiency standards will not diminish our propsperity, but will enhance it by creating savings and promoting new industry.I don't suppose the free marketeers will like this call for government research either:

Get serious about funding research, development and deployment, at scale.

For years, science policy players have had a bad case of DARPA envy. The Defense Dept. agency has long funded breakthrough research deemed too risky for industry to tackle on its own. So why not create a civilian version to jump-start technologies crucial to American competitiveness? One passionate advocate has been scientist Steven Chu. He succeeded in getting Congress to authorize a DARPA-like agency for the latest hot area of research—energy—in 2007, though Congress didn't provide any money for it then. But after he became President Barack Obama's Energy Secretary, Chu finally got the Advanced Research Projects Agency-Energy off the ground in March with $400 million from the stimulus package.

For those who doubt whether a government research agency can be effective in promoting economically useful technologies, DARPA is the agency that created the precursors to the Internet, UNIX, the computer mouse and several generations of advanced silicon chip designs.